Gaining Leverage While Lowering Risk in Construction Lending

Leverage typically comes in two forms – financial and power. When a borrower requests a construction loan, they need the financial leverage the loan provides so they can construct (or renovate) buildings to produce a profitable investment. However, once a construction loan is approved, they gain a different type of leverage – one of power that grows as each draw is disbursed. Why? Because no lender wants their borrower to default, forcing them to take back an unfinished property/project.

Today, lenders have options to gain the upper hand with difficult borrowers, which ultimately increases their leverage. This article discusses strategies so you can approve more construction loans, gain more leverage to persuade borrowers to comply with loan covenants, and increase your overall confidence that, even if the borrower doesn’t comply, the project will still get completed.